1. We, the Finance Ministers of the G-7 countries, including the President of the Eurogroup, the Central Bank Governors of Canada, Japan, the United States, and the United Kingdom and the President of the European Central Bank, met today with the Managing Director of the International Monetary Fund to review recent developments in the world economy. We, the Finance Ministers and Central Bank Governors of the G-7 countries together with the Managing Director of the International Monetary Fund and the President of the World Bank, discussed reform of the international financial institutions. We, the Finance Ministers and Central Bank Governors of the G-7 countries also discussed implementation issues of the enhanced HIPC initiative, and abuse of the global financial system.

Developments in the G-7 countries

2. Prospects for continued expansion in industrialised countries and the world economy more generally have further improved in recent months as underlying fundamentals have strengthened. A more balanced and therefore more sustainable pattern of growth among our economies is emerging. Continued vigilance, however, remains important and we re-affirmed our commitment to macroeconomic and structural policies directed at improving conditions for strong and sustainable growth in each of our economies. More specifically:

• In the United States and Canada, growth remains strong, unemployment low and inflation contained. For a sustainable rate of growth to be maintained, fiscal policies and monetary policy should continue to be prudent, and in the United States, national savings should increase.
• In the United Kingdom growth is strong, employment is rising and inflation remains low. Monetary policy, supported by fiscal policy, should continue to be aimed at meeting the inflation target, while sustaining growth and employment.
• In the Euro area as well, growth is strong and inflation remains low. Continuation of sound macroeconomic policies and intensification of structural reforms with a view to raising private investment and increasing productive potential are important.

• In Japan there are signs of a recovery. Still, macroeconomic policies should remain supportive to ensure a self-sustaining, domestic demand-led recovery. Structural reforms in the financial and corporate sector need to be continued to ensure a durable recovery and an increase in productive potential.

Oil Prices

3. We are concerned about the adverse effects on the world economy of the recent sharp increase in the world oil price. It is important that world oil prices return to a level consistent with lasting global economic prosperity and stability for both oil producing and consuming countries, and in particular for the poor developing countries. In light of continuing high prices and low levels of stocks it is crucial for the world economy that OPEC and other oil producing countries take actions to contribute to a reduction in oil prices and greater stability in oil markets. Improved efficiency in the use of energy in all economies would contribute to that objective. We welcome the U.S. action to release a limited quantity of its oil reserves in the form of swap transactions. We agreed to remain in close contact and to continue our discussions with oil producing and consuming countries as we evaluate measures appropriate to the evolving situation in oil and product markets.

Exchange Rates

4. We discussed developments in our exchange and financial markets. We have a shared interest in a strong and stable international monetary system. At the initiative of the European Central Bank, the monetary authorities of the United States, Japan, United Kingdom and Canada joined with the European Central Bank on Friday, September 22, in concerted intervention in exchange markets, because of the shared concern of Finance Ministers and Governors about the potential implications of recent movements in the euro for the world economy. In light of recent developments, we will continue to monitor developments closely and to cooperate in exchange markets as appropriate.

Emerging Market Economies

5. Recovery in emerging market economies is well under way. Macroeconomic fundamentals have generally strengthened and market sentiment remains positive. Policies in these countries must be directed at deepening economic reforms, in particular by improving underlying fiscal positions and debt structures and by strengthening the financial sector.

Countries should, however, maintain the momentum for reform and address real and potential underlying vulnerabilities. We stress in particular the need for further progress in corporate and financial restructuring in many Asian countries and the need for policies aimed at reducing vulnerabilities in many Latin American countries.

Russia

6. We are encouraged by the continuing robust growth of the Russian economy this year, combined with a strong revenue and export performance, a comfortable balance of payments situation and substantial accumulation of foreign reserves. We welcome the economic programme of the Government of the Russian Federation aiming at creating a legislative framework to improve the investment climate, structural reform and financial stability. The recently approved tax reform is an encouraging sign of progress in implementing this programme and to achieve sustainable growth. We call upon Russia to firmly implement other key structural reforms such as securing property rights, enforcing the rule of law, combating money laundering, improving corporate governance, strengthening accountability and transparency in Russia’s central bank, and creating an efficient financial sector to unlock Russia’s economic potential. We call upon the International Financial Institutions and Russia to work together in achieving this common goal.

Strengthening the International Financial Institutions

7. The International Financial Institutions are key players in ensuring that globalisation is a force for good and that the poorest nations can participate in, and benefit from, the international financial system. We welcome the recent joint statement from the Managing Director of the IMF and the President of the World Bank Group, in particular their commitment to make these institutions work effectively together to increase the effectiveness and sustained impact of their operations to reduce poverty, increase growth, and strengthen the stability of the international financial system. We will continue to work together with other members of the international community to further strengthen the global financial system.

IMF Reform

8. We welcome the Managing Director’s commitment to reform of the IMF and look forward to working with him to ensure the IMF is well-equipped to face future challenges. We note the progress achieved in strengthening the surveillance role of the IMF to help prevent crises and promote domestic and international financial stability and call on the Fund to speed up its work in this area. This includes strengthening the Fund’s central role in the surveillance of codes and standards and promoting their implementation, greater transparency of the Fund’s activities and members’ policies, increasing the emphasis on national balance sheet and liability management, enhancing its ability to identify sources of vulnerability and paying close attention to the appropriateness of a country’s exchange rate regime. We welcome the recommendations by the Financial Stability Forum on promoting market and official incentives for the implementation of standards and codes. We reaffirm the importance of building stronger and more resilient national financial systems in emerging market economies that can withstand the challenges that come with progressive financial liberalization. We call on the IMF to continue its work in this area.

9. We welcome the agreement achieved in the IMF to adapt its lending instruments to reflect better the realities of global capital markets – encouraging countries to take preventive measures to reduce vulnerabilities and providing temporary and appropriately conditioned support for balance of payments adjustment and, in defined circumstances, medium-term finance in support of structural reform, while avoiding unduly long, or repeated use of, and deterring large scale access to IMF resources. We look forward to the upcoming review of conditionality associated with IMF lending, in order to ensure that it is focused and addresses issues essential to the success of the programme.

10. We welcome progress in developing a framework for private sector involvement in preventing and resolving crises. Private external creditors, including bond holders, have been more involved in the financing of recent IMF-led programs. We look forward to further progress at the IMF in making operational this approach in the design of IMF programs so as to provide greater clarity to countries and market participants. An efficient coordination with the Paris Club is also of utmost importance in this regard. We welcome the establishment by the Fund of a Capital Markets Consultative Group which can play an important role in exchanging information with capital markets.

11. We look forward to ongoing improvements in the accountability and modernization of the structure and operation of the IMF itself. We welcome the agreement in the IMF Board on the terms of reference for the Independent Evaluation Office. We urge implementation of the IMF’s recently strengthened framework for safeguarding resources. In addition, we call on the IMF to enhance its cooperation with other international institutions, including the WTO and ILO. It is essential that IMF’s decision-making structure and its operation remain accountable. In view of the importance of having an allocation of IMF quotas that reflect developments in the world economy, we take note of the effort now underway in the IMF to examine the formula for calculating country quotas.

MDB Reform

12. We reaffirm our commitment to MDB reform aimed at helping countries reduce poverty and welcome the substantial progress that has been made in translating these shared priorities into core policies and operational practices. The challenges are to build on this progress, to translate the principles of good governance, selectivity and accountability, the importance of ownership and participation, into concrete action aimed at a substantive development impact. We call on the MDBs:

• to increase emphasis on selectivity and results of MDB assistance.
• to establish, performance based frameworks containing benchmark indicators to achieve clear, monitorable and durable developmental results.
• to provide sustained high levels of support for targeted investments in critical areas such as basic health, education, clean water and rural development.
• to submit proposals on how MDBs can expand activities in the provision of Global Public Goods.
• to initiate a comprehensive pricing policy review which should present feasible policy options for a stronger development impact.
• to present proposals aimed at strengthening internal governance and, in particular, compliance with safeguards and fiduciary policies.

• to develop Memoranda of Understanding between the World Bank and regional MDBs setting out areas of specialization and collaboration.

Actions against Money Laundering and the Abuse of the Global Finance System

13. We have made significant progress in recent months in the international fight against financial abuse, including money laundering and corruption, in particular through the work of the Financial Action Task Force on Money Laundering (FATF) (establishing a first list of non-cooperative jurisdictions). We re-affirm our strong support for the efforts by the OECD (addressing harmful tax practices), and FSF on OFCs, and by the FATF for the inclusion of its recommendations among the priority international financial standards. We commit to pursue the review of additional non-cooperative countries and territories in the FATF. We are prepared to provide, where appropriate, our technical assistance to jurisdictions that commit to making improvements to there regimes. We are committed, where dialogue to ensure compliance with international standards has demonstrably failed with countries listed as non-cooperative by the FATF, to defining an appropriate and comprehensive set of counter-measures. These would include the possibility to condition or restrict financial transactions, in order to protect the international financial system against abuse and to condition or restrict assistance by the international financial institutions to those jurisdictions. We have already issued advisories to our banks and other financial institutions to demonstrate our commitment in this field. We call on the IMF, the World Bank and the regional development banks to fully integrate the fight against financial abuse in their surveillance exercises and programs. We urge the IMF and World Bank to prepare a joint paper on their respective roles in combating financial abuse and to protect the international financial system, for discussion by their Boards before the spring meetings and ask them to report to the spring IMFC/Development Committee meetings on the status of their efforts.

Enhanced HIPC Initiative

14. We note the progress in the implementation of the Enhanced HIPC Initiative, launched last year in Cologne and reaffirm our strong commitment to achieving further progress in delivering debt relief to HIPC countries committed to poverty reduction. Thus far, ten countries have reached their decision points and are now receiving substantial cash flow relief.

By the end of 2000, as many as twenty countries are expected to reach their decision points and begin receiving debt relief. We welcome the initiatives outlined by the Heads of the IMF and the World Bank to improve progress and reduce poverty. For debt relief to be effective, the implementation of successful economic and social reform is imperative. We emphasise the importance of country-owned Poverty Reduction Strategy Papers (PRSP) which are a vital way of ensuring that the proceeds of debt relief and development lead to poverty reduction and growth.

We encourage the countries which have not yet reached their Decision Point to continue reform efforts in order to benefit from the Enhanced HIPC-Initiative. We call on those countries engaged in military conflict to seek peace and take reform measures necessary in order to qualify for the HIPC Initiative. We ask the IMF and World Bank to examine as soon as possible how their activities in conflict countries can better prepare them for possible entry into the HIPC process. We reaffirm our commitment to 100% debt relief on ODA and eligible commercial claims and urge other creditors that have not yet done so to follow suit. We reaffirm our commitment to secure the required financing for the implementation of the HIPC-Initiative. We welcome the progress made thus far and call upon bilateral and multilateral creditors to meet their financial commitments, with fair burden sharing among creditors.

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Source: Department of Finance, Canada